Smart SpendingSmart Spending

US might be a 'nation of deadbeats'

Americans have been paying down debt but walking away from more.

By MSN Money Partner Jan 15, 2013 12:49PM

This post comes from Brett Arends at partner site MarketWatch.

 

MarketWatch logoPresident Barack Obama said on Monday that "we are not a nation of deadbeats," but instead a people who "pay our bills."

 

Image: WorriedMan (© Corbis)Really?

 

A close look at the data reveals a very different story -- and one that gets far too little airing in public discourse.

 

Far from paying our bills, the current generation of Americans -- or some of them -- have set records for default which probably have no parallel in the history of the human race. During the last five years, U.S. individuals have walked away from a staggering $585 billion in mortgages, credit card debts and other personal loans. That works out at about $6,000 per household.

 

And if the numbers are to be believed, there is probably a lot more to come.

 

Turn on any news program devoted to the economy and you will doubtless hear some Wall Street blowhard telling you that American households have been "repairing their balance sheets" and paying down their debts. They make it sound so virtuous, and they often then segue into sneering remarks about those degenerate Greeks and other Europeans who don't behave in the same responsible way.

 

The truth is very different. According to the Federal Reserve, U.S. household debt peaked five years ago at a gigantic $13.8 trillion. Since then it has declined to $12.9 trillion -- a decline of about 7%. To put that in context, household debts today still exceed those seen at the end of 2006, near the peak of the bubble. They are three times what they were in 1998.

 

Furthermore, the majority of that reduction hasn't come from people paying off their loans, but from banks writing them off.

The total debt reduction from the peak, says the Fed, is $954 billion. Loan write-offs, at $585 billion, account for 60% of that. In other words, for all the chest-thumping about how Americans are repairing their balance sheets and how we aren't a nation of deadbeats, in the past five years Americans have walked away from $3 in debt for every $2 they've paid off.

 

In the first quarter of 2010 alone, about 13% of all credit card debt was just written off.

 

Households weren't alone. Corporations have defaulted on $35 billion to $40 billion in debt per year in recent years, according to Moody's.

 

Naturally this has occurred even while the federal government has bailed out bankrupt financial institutions, and flooded the economy with massive deficits, low interest rates and free money to make it all easier.

 

Heaven knows what the situation would have looked like under a system of honest money.

 

It's easy to get too sanctimonious. Once a country gets itself into a disastrous debt hole, write-offs may be the only sensible way out. After all, for every reckless borrower there was also a reckless lender. If a debt is not going to be repaid, a policy of "extend and pretend," let alone, say, debtors' prison, is not going to help. So maybe deadbeat economics is the way to go.

 

But let's go easy on the chest-thumping.

 

More on MarketWatch and MSN Money:

 

430Comments
Jan 15, 2013 5:15PM
avatar
Americans are just following the example set by their government.
Jan 15, 2013 5:10PM
avatar
Bankruptcy use to be an evil thing. Now it is used like a reset button. What ever happened to being responsible? How can the leader of a nation which is in debt for almost 17 trillion dollars declare that nation is not a deadbeat borrower? Isn't that a bald faced lie? Maybe the definition of "deadbeat" has been amended by executive order...
Jan 15, 2013 5:08PM
avatar
When a dead beat from Chicago is put in POWER..   Yes! what did you expect?
Jan 15, 2013 4:56PM
avatar
Spend wisely, buy what you need and stop trying to keep up with the Jones.
Jan 15, 2013 4:54PM
avatar
Paying your bills means, you know, actually paying them.  Getting out of debt usually works best when you are minimizing or eliminating new debt.  Telling oneself, "If I spend even more money I don't have then I can reduce my debt" is something people have tried in the past.  I mean that honestly.  People have tried borrowing to pay off borrowed money and credit for years.  It never works though.  It just makes the problem bigger until it can no longer be sustained.  For just an individual or family it is disastrous.  Anyone else afraid of how bad it is going to be when America hits that point?
Jan 15, 2013 4:52PM
Jan 15, 2013 4:44PM
avatar
I am not a deadbeat myself (I like to work to stay strong) though I do know more deadbeats than hard working folk. Everybody milks the system as best they can so they do not have to move that much and sit on a couch and watch Springer or Judge Judy. Then the other part of it,,NOT taking any responsibility for anything. Yeah at 50 years old now I have seen a dramatic shift towards being complacent and downright lazy as the years have gone by. I was raised to work hard and to not expect anything from anybody without earning it myself.
Jan 15, 2013 4:42PM
avatar
Just following the policies of our leadership.
Jan 15, 2013 4:40PM
avatar
This clown has to be doing this on purpose.  $117 Trillion in unfunded obligations.  The politicians are deadbeats.
Jan 15, 2013 3:36PM
avatar
when the people start to laugh at their government, the end is near.
Jan 15, 2013 2:53PM
avatar
The American people, and their government,  are the world's greatest deadbeats.  This goes back to our founding when we stole land and reneged on treaties. it's in our national DNA . We can't help but be thieves, liars, and deadbeats. 
Jan 15, 2013 2:49PM
avatar

Oh, how quaint.  People don't realize the new modern way of paying back money is so easy now that we're much more enlightened than our forefathers about the whole matter, just print, baby, print!

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More